U.S. airlines are in the early stages of a pilot shortage that could boost labor costs and even constrain growth.

Unless airlines find ways to work with partners to cultivate a pilot pipeline, they could face difficult, even volatile, competition for experienced pilots because the current regulatory and industry situation can only yield about two-thirds of the pilots the U.S. will need in the next 20 years. That could mean constrained airline revenue, higher fares, or both. Kids, get your pilots licenses, because this could be the career of the 2020s and 30s.

Pilots sit in the cockpit of a VietJet Air aircraft, operated by VietJet Aviation Joint Stock Co., at Noi Bai International Airport in Hanoi, Vietnam, on Sunday, June 1, 2014. VietJet, Vietnam's only privately owned airline, may seek to raise $400 million to $500 million in an initial public offering next year as it takes delivery of as many as 100 additional planes. Photographer: Brent Lewin/Bloomberg

The pilot profession is highly regulated to drive a high level of safety, with laws dictating the level of experience and proficiency a pilot must acquire before flying a commercial aircraft, as well as when and how a professional pilot may work. This constrained environment has always made it difficult for the industry to meet the ebbs and flows of demand. New regulations further constrain the availability of new pilots. Now, as demand for air travel grows rapidly (global commercial airline capacity rose more than 6 percent last year, according to Oliver Wyman’s Airline Economic Analysis) many aviation insiders see the number of pilots in training and the future demand for commercial pilots diverging.

Leading airline executives are considering a new approach to the problem by forming partnerships with operators, training providers, and even regulators to shape the pipeline of pilots in training. Some major carriers and large regional airlines are well positioned to exploit these opportunities.

The demand for pilots by U.S. airlines is likely to outstrip supply.

Pilot Pipeline

Becoming a commercial airline pilot is a time-intensive process that requires academic instruction, flight experience, numerous certifications and, typically, a progression of different flight-related jobs to gain the right experience. In the past, commercial pilots needed at least 250 flight hours, which takes at least six months and can cost up to $100,000. U.S. pilots have traditionally absorbed these costs themselves, sometimes by combining the training with college degree programs. Prior to August 2013, pilots who had completed this stage of training were eligible to become U.S. commercial airline co-pilots. Outside of the U.S., many international airlines sponsor student pilots and either pay for this training or offer loans with favorable terms associated with future employment at the sponsoring airline.

New regulations introduced in 2013, designed to increase pilot proficiency, mandate that co-pilots working for commercial airlines hold airline transport pilot (ATP) certificates. This typically requires 1,500 flight hours and other experience gained by working at lower-paying pilot jobs. These new regulations make commercial airlines dependent on a set of aviation segments that provide the necessary experience but that are not elastic to growth in demand by the airlines and other career-employment companies. Even a perfectly efficient system could only provide the experience required for two-thirds of the pilots needed in the U.S.

The effect of the new regulations is further compounded by the fact that, according to the U.S. Government Accountability Office, the military, traditionally the largest source of airline pilots, now accounts for only 30 percent of new airline pilots. Further, the supply of military pilots will likely continue to shrink as military branches roll out programs to incentivize pilots to stay longer.

Pilot Demand

As the pilot career pipeline becomes constrained, the commercial airline industry’s demand for pilots is rising. Oliver Wyman’s 2016-2026 Global Fleet & MRO Market Forecast expects the number of commercial aircraft in service in the U.S. to rise 7.7 percent during the next 20 years to 8,067. The forecast expects the number of commercial aircraft in the global fleet to rise 40 percent to 34,437 aircraft.

Airlines are adding more airplanes just as a wave of pilots nears retirement and regulations on pilot duty times have tightened. The industry’s appetite for new ATP-rated pilots is at an all-time high, and
Boeing Co. estimates U.S. airlines will demand about 95,000 pilots in the next 20 years.

Of course, U.S. pilots also fly for international airlines and corporate fractional flight operations, further boosting demand. Europe is expected to need 95,000 pilots, and Asia will likely need 226,000.

Juicing the Pipeline

Airline operators can follow several philosophies on managing the pilot pipeline. Some airlines may buy their way out and offer higher salaries, incentives, and benefits to pilots. For others this will be too costly and could upend their business. Such carriers must consider strategies to recruit pilots in a more competitive and constrained environment. This could entail developing programs with vocational or collegiate flight schools, developing more formalized feeder programs with regional partners, or financing the next generation of qualified pilots. However, these options are also costly.

In the long term, the industry could work to influence regulations, but this could take years and might not yield a superior paradigm. Carriers will still need to consider what they can offer pilots both in terms of compensation and work rules. Regional carriers, which traditionally offer lower pat rates, may see high attrition as demand from majors grows. Regionals will need to explore alternatives including productivity improvements, enhanced pilot compensation and collaboration with mainline partners in order secure their supply of qualified pilots. Major airlines will need to contemplate strategies to protect their pipelines from poaching by competing carriers. Similarly, even with industry standard rates of pay, low-cost carriers may see attrition from the bottom of their seniority lists as pilots pursue more compelling opportunities with majors or international carriers.

The pilot pipeline will adapt to the new marketplace and passivity will not be rewarded. The smart airlines are exploring stronger, scalable relationships within the pipeline, namely with pilot training organizations. These types of relationships could be the key differentiator for airline success.

Brian Prentice is a partner in Oliver Wyman’s aviation practice, and he is based in Dallas. Philippe Gouel is a principal with the practice, and he is based in Chicago.